The Danger of Becoming Emotionally Attached to 1 Stock

This is my third post about my love-hate relationship with GE. After the news last week about GE, this relationship is really leaning more toward a hate-hate relationship.

What happened at GE

If you’re not familiar with what happened at GE last week, here’s a brief review:

On Thursday, a guy named Harry Markopolos, who became famous for being a whistleblower in the Bernie Madoff scandal, wrote a scathing 175-page report about fraudulent accounting at GE. Markopoulos peppered the report with claims such as “bigger than Enron and WorldCom combined,” two of the biggest scandals to ever rock corporate America. The writer claims that GE is hiding $40 billion in losses in its insurance business. Markopolos boldly declares that GE is on the verge of bankruptcy.

These are some pretty damning claims. Shortly after the story broke, GE stock had its worst day in 11 years plummeting 11%. Prior to the report, GE stock was up over 25% year to date.

A couple of interesting notes about Markopolos, this do-gooder of corporate America. First, he works for a hedge fund which shorted the stock prior to the report being published, but after he was aware of the alleged misdoings at GE. The unnamed hedge fund made a lot of money when the stock subsequently tanked after the report became public.

Second, there’s apparently a pretty lucrative income to be made from corporate whistleblowing. The bigger the scandal, the bigger the payout. Let’s just say that this guy’s intentions seem somewhat disingenuous.

Why I love GE

To make a long story short, GE was a big part of my growing up in a small southern town. Even though the GE factory is long gone, my memories of how much GE impacted the community still linger. We bought GE stock in early 2018, after the stock had tanked 50% the previous year and new management had been named at the company. We thought the worst for the stock was behind the company. Boy, were we wrong!

The danger of being emotionally invested in a stock

I was listening to a podcast from one of my favorite money guys, Paul Merriman, just days before the news of the GE scandal broke. Merriman was talking about several of his former clients who invested heavily in tech companies in early 2000, just before the tech bubble burst and their investments quickly lost 50% or more. He said that many of these clients just couldn’t bring themselves to sell the stocks at a loss. They either couldn’t stomach the loss or believed that the companies would make a comeback.

As I was listening to Merriman, it occurred to me that this describes my situation with GE: I can’t stomach the loss and I’m hoping that GE, a once great American icon, can make a comeback. Merriman stated that his clients would have financially (and emotionally) fared much better if they had taken the loss in 2000 and invested the remaining money in practically any stock in the market.

When I got home, I talked to my husband about the podcast. We honestly thought about selling GE. Even at a loss of over 30%. But we didn’t sell.

Now, after the events of the last few days, our loss has grown to 50%. Sigh – the danger of becoming emotionally invested in a single stock.

Our plan

Even as I type this, I’m not sure what we’re going to do with the stock. My husband says we should continue to hold the stock for the long term because the government will never let GE go bankrupt. Maybe he’s right. We all remember the bailouts that saved several companies during the last recession. But hopefully it won’t come to that. I’m hoping that the allegations aren’t true. That GE, a company that was the only remaining original member of the Dow Jones Industrial Average (Dow) until it was banished last year, will still pull through.

Sometimes we all need a bit of nostalgia. And GE is one of the most nostalgic companies out there. After all, GE created the Carousel of Progress for the World’s Fair in 1964. That rotating animatronic display still operates in Tomorrowland at Disney World to this day and provides a fun look at how far we’ve come in the past 50 years. Here’s hoping GE can survive another 50!